Market Update:
Consumer Staples
Winter 2012
Dave Allen
Matt Cleverly
Chenyang Feng
AGENDA
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Sector Overview
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Economic Analysis
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Financial / Valuation Analysis
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Recommendations
Sector Overview
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Companies that provide products or services that are
essential
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Manufacturers and distributors of food, beverages,
tobacco, drug retailing and producers of non-durable
household goods
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Shampoo, Tobacco, Pharmacies
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Industry Breakdown
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Agricultural Products
Brewers
Distillers & Vintners
Drug Retail
Food Distributors
Food Retail
Household Products
Hyper Markets & Super Centers
Packaged Foods & Meats
Personal Products
Soft Drinks
Tobacco
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Trading Strategy
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Tend to perform regardless of economic fluctuation
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Typically referred to as defensive stocks
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Pay higher dividends than average
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In general, hold this sector as the economy declines and sell this
sector as the economy strengthens to take advantage of higher
growth areas in times of recovery, i.e.. Consumer Discretionary
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Economic Life-Cycle Analysis
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Looking Back 5 years, Consumer Staples
Has Held Relatively Flat vs. S&P
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Consumer Credit People Are Borrowing!
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Auto Market Recovered Well, Forecasted to Grow
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Housing Starts Lowest In 50 Years, Can’t Get Worse, Right?
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Unemployment Fell to 8.3% With The Creation of 243K Jobs
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Current Holdings - Overweight 111 BP
S&P 500
Utilities
3%
Tcomm Services
3%
Materials
4%
SIM
Utilities
Consumer
3%
Tcomm Services Discretionary
8%
4%
Consumer
Discretionary
11%
Information
Technology
19%
Energy
12%
Industrials
11%
Health Care
12%
Sector Overview
Materials
3%
Consumer Staples
11%
Financials
14%
Consumer Staples
12%
Information
Technology
22%
Energy
11%
Industrials
10%
Financials
13%
Health Care
14%
Economic Analysis
Valuation Analysis
Recommendation
High Level Recommendation
Based on Goal Of Beating the S&P
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We recommend to Sell 111 basis points (to get in line w / S&P)
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Economic drivers are indicating neutral to favorable news
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Consumer credit is strengthening
Auto’s are up
Housing can’t get worse
Unemployment is improving
However, it could be recommended that based on economic uncertainty that a hold
position in this sector be suggested.
Source: Business Insider : http://www.businessinsider.com/4-words-that-describe-this-economic-recovery-2012-2
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Economic Analysis
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Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Economic Analysis
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Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Economic Analysis
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Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Economic Analysis
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Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Economic Analysis
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Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Economic Analysis
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Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Economic Analysis
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Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Economic Analysis
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Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Sector Financial Analysis
Sales
Earnings
Expected Growth Rates % Change
Current Qtr (Dec 11)
10%
Previous Qtr (Sep 11)
12%
Year Ending Dec 11
13%
Year Ending Dec 12
5%
Expected Growth Rates % Change
Current Qtr (Dec 11)
4%
Previous Qtr (Sep 11)
8%
Year Ending Dec 11
9%
Year Ending Dec 12
7%
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Sector Financial Analysis
Net profit M argin
Median Current
5.30%
5.30%
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Sector Valuation- Absolute
Absolute High
Low
Median Current
Basis
P/Trailing
20.1
12.2
15.7
15.9
E
P/Forward
18.7
12.1
14.6
14.8
E
P/B
4.5
2.6
3.5
3.3
P/S
1.1
0.6
0.9
0.8
P/CF
14.5
8.6
11.2
11.7
In absolute terms, the sector is trading inline with its historical
average.
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Sector Valuation- Relative to S&P500
Low
Median Current
Relative High
to SP500
P/Trailing
1.3
0.83
1.1
1.2
E
P/Forward
1.3
0.82
1.1
1.1
E
P/B
2
1.4
1.6
1.6
P/S
0.9
0.6
0.7
0.7
P/CF
1.4
1
1.2
1.3
Relative to S&P 500, the sector is trading more inline with its
historical average or if anything slightly overpriced compared to
historical median.
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Forward P/E Relative to S&P 500
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Trailing 12 Months P/E
Trailing 12 m onths P/E Relativ e to S&P 500
Sector
Median Current Premium
Telecommunication
0.93
1.2
129%
Energy
0.77
0.85
110%
Utilities
0.91
1
110%
Consumer Staples
1.1
1.2
109%
Consumer Discretionary
1.2
1.3
108%
Industrials
1.1
1.2
109%
Materials
1.1
1
91%
Financials
0.76
0.76
100%
Health Care
1
0.93
93%
Info Technology
1.3
1.1
85%
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Valuation Recommendation
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Absolute values indicate that the sector is priced in line
with its historical average.
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Relative to S&P 500, the sector is slightly overpriced
compared to its median.
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We suggest sell
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Recommendation
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As stated, SIM currently has a strong position in
Consumer Staples vs. S&P 500
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Based on the high level economics as well as the
valuation analysis, it is recommended:
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Sell 111 BPs
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation
Questions / Feedback:
Sector Overview
Economic Analysis
Valuation Analysis
Recommendation